Which of the Following Increases Basis Risk

question 4

Multiple Choice

Which of the following increases basis risk?

• A) A large difference between the futures prices when the hedge is put in place and when it is closed out
• B) Dissimilarity between the underlying asset of the futures contract and the hedger's exposure
• C) A reduction in the time between the date when the futures contract is closed and its delivery month
• D) None of the above

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Definitions:

Spontaneous Recovery

The reappearance of a previously extinguished response after a period of no exposure to the conditioned stimulus.

Stimulus Discrimination

The learned ability to differentiate between similar stimuli, responding only to the original conditioned stimulus and not to similar ones.

Stimulus Generalization

A psychological phenomenon in which a response to a specific stimulus becomes associated with other stimuli that are similar.

Conditioned Response

A learned reaction to a previously neutral stimulus that has become associated with an unconditioned stimulus.